THE BASICS: 203(k) Limited. FHA Limited 203(k) ssss. Andrew Allen Updated 10/20/15

Transcription

1 SLIDE 1 R THE BASICS: Limited 203(k) ssss FHA Limited 203(k) Andrew Allen Updated 10/20/15

2 SLIDE 2 FHA Limited 203(k) Questions Limited 203(k) Explained What is the FHA Limited 203(k)s Loan Program? What are the program guidelines? What types of improvements are allowed? What are the general contractor guidelines? How is a 203(k) appraisal different? How to fill out the 203k Maximum Mortgage Calculation Form and determine the maximum loan amount? What happens after closing?

3 SLIDE 3 FHA Limited 203K Loan Program Limited 203(k) Explained The FHA Limited 203(k) program, enables borrowers to either purchase or refinance their home while including minor rehabilitation costs in the same loan. There is no minimum requirement for repairs and there is a maximum total rehabilitation escrow of $35,000.

4 SLIDE 4 Increased Market Opportunity Limited 203(k) 1. Purchases: Homes in need of rehabilitation 1. Perfect for HUD REOs, foreclosures, and short sales 2. Out-dated kitchens, bathrooms, etc. 2. Refinances: Make improvements 1. Improve instead of move 2. Out-dated kitchen, bathrooms, etc. 3. Incomplete renovations 3. Both Purchases and Refinances: If unexpectedly, the appraisal is subject to minor or non-structural repairs

5 SLIDE 5 FHA Limited 203(k) Limited 203(k) Credit/Ratio Requirements At AFR, the same FHA credit and underwriting guidelines apply to the Limited 203(k) program as the Standard FHA 203(b) program. Minimum credit score of Must receive DU Approve/Eligible. Both Purchases and Refinances ratios as determined by AUS findings. Refer/Eligible received by DU will require a manual downgrade to strict 31%/43%. Must have a minimum of a 620 score, no exceptions.

6 SLIDE 7 Improvements Allowed Limited 203(k) Explained Minor remodeling that does not involve structural repairs Existing well and septic minor repair Basement waterproofing Mild mold remediation Heating, ventilation and air conditioning systems Plumbing and electrical systems Flooring, exterior and interior painting Weatherization, including storm windows and doors, insulation, weather stripping Replacement of window and doors and exterior wall re-siding Appliances, including free-standing ranges, refrigerators, washers and dryers, dishwashers and microwaves Improvements for accessibility for persons with disabilities Lead-based paint stabilization or abatement of lead-based paint hazards Replacement/addition of exterior decks, patios, & porches Roofs, gutters and downspouts

7 SLIDE 8 Improvements NOT Allowed Limited 203(k) Explained Major structural repairs/rehabilitation Additions to the home Moving or repairing a load bearing wall Repairs requiring detailed plans and specs Any repair taking longer than 3 months Repairs requiring more than 2 draws Luxury items are not eligible Landscaping, swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas, etc. Alterations to support commercial/business use

8 SLIDE 9 Property Types Limited 203(k) Explained One year existing/completed home Owner Occupied Properties Only (FHA) Single Family Residence Manufactured Homes FHA Approved Condo s PUD s 1-2 Unit Properties REO, Short Sale, Foreclosure Ok!

9 SLIDE 10 Ineligible Property Types Limited 203(k) Explained Mixed-use properties Co-ops or non-fha approved condos Investment properties Mobile homes 3-4 Unit Properties COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

10 SLIDE 6 AFR Limited 203(k) Overlays Limited 203(k) Explained No razing of homes. No demolition of a home down to its foundation. No physically relocating a home from one location to another. No Self-Help. The borrower/owner may not be involved whatsoever in any aspect of the construction his or herself. All applicable AFR Standard FHA 203(b) Program overlays apply.

11 SLIDE 11 Limited 203(k) Loan Limited 203(k) Features Up to $35,000 held in escrow for non-structural renovation allowed No HUD Consultant required Must utilize borrower directed licensed contractor No self help allowed 2 Draws Maximum Initial draw of up to 50% of the estimated material and labor cost only when a statement from the contractor is received, prior to close, stating he is unable or is not willing to start without it. Final draw after final passing inspection

12 SLIDE 12 Limited 203(k) Contractors Limited 203(k) Explained AFR permits for one contractor. Although obtaining more than one bid is recommended (not required) In situations where more than one contractor is needed, one must be named as the general contractor. The general contractor will carry over all of the subcontractors bids onto his/ her bid. The general contractor will be responsible for overseeing that all repairs are done in a workmanlike and timely manner.

13 SLIDE 13 Limited 203(k) Contractor Limited 203(k) Explained The general contractor will also be responsible for disbursing all funds to the subcontractors when funds are released from escrow. The general contractor must carry sufficient insurance equal to the amount of the total rehab amount through a valid and current liability insurance declarations page. The contractor must provide a detailed work write up or bid itemizing all the repairs that are to be completed with cost and note if permits are going to be required. Licensing requirements vary in each state/municipality for contractors. If a repair calls for a specialized contractor, such as electrical or plumbing repairs, the contractor must be licensed to do the work.

14 SLIDE 16 Limited 203(k) Contractor Limited 203(k) Explained A family member (who doesn t own the property) can be the GC, however they must be satisfactorily licensed if required by the state/municipality, and adequately insured. The GC may be a family member, however the borrower may not be an owner or an employee of their business.

15 SLIDE 15 Contractor s Estimate (Sample)

16 SLIDE 17 Appraisal Limited 203(k) Explained Appraisal is ordered as an FHA 203(k) appraisal. Make sure the GC Estimate is forwarded to the appraisal company upon the order (for both purchases/refinances). The appraiser will review the contractor bid to determine that it falls within the usual and customary range for similar work. Appraiser does the appraisal subject to the completion repairs/improvements and will give an after improved value based upon the list of repairs. The scope of the appraisal is the future value!

17 SLIDE 19 Total Rehab Cost Limited 203(k)s Explained The Total Rehabilitation Cost includes all of the following and may not exceed $35,000: cost of rehabilitation (contractor s estimate) contingency reserve 10%-20% (typically 10%) $300 final inspection fees (2 $150/per.) permits (if required)

18 SLIDE 20 Total Rehab Cost Limited 203(k) Explained Borrowers may not provide the additional money to escrow if the repairs exceed the $35,000. The actual costs will have to be reduced to include all of the required fees. In order to utilize the maximum amount allowed under the program, the GC s bid may not exceed $31,545 when a contingency fee and final completion reports are being factored. example: $31,545 + $3, (10%) + $300 = $34,999.50

19 SLIDE 21 Maximum Mortgage Calculation Form Limited 203(k) The 203K Maximum Mortgage Calculation Form must be completed in calculating the max loan amount. The worksheet will determine your highest allowable loan amount and LTV, based upon your scenario Remember to check your calculated base loan amount to make sure it does not exceed the max loan limits for the area!

20 SLIDE 27 Worksheet for Refinances Limited 203(k)s For refinances the borrower paid closing costs and pre-paid must be entered into the worksheet No Cash Out: Max cash out permitted to the borrower is $500. No debt (outside of mortgages attached to the property) may be included in the refinance.

21 SLIDE 35 Potential Pitfalls Unsupported after-improved or to be completed value: There are times when the after improved value is not supported with all of the repairs that are completed. Deferred maintenance, such as peeling paint, does not add value! Bid is out of line and not commensurate with work being proposed

22 SLIDE 36 After Closing/Renovation Period The GC may receive first draw (up to 50% of repair costs) at closing/funding in order to buy materials and start the renovations as long as a statement from the GC is received, prior to close, indicating the contractor is unable or unwilling to start the renovation without the initial draw. The renovation should begin within 30 days of closing Borrowers will make their regular mortgage payments throughout the course of construction Maximum renovation period is 3 months

23 SLIDE 37 Final Inspection - Completion When the work is complete, GC and borrower sends an requesting the final inspection to renovation@afrwholesale.com Include a completed Conditional Waiver & Release and the Mortgagor s Letter of Completion (found on our website) AFR will order the final inspection from the original appraiser Upon the receipt of the acceptable final inspection and forms, a final disbursement will be made to the contractor All remaining funds in escrow will be made as a principal reduction to the mortgage

24 SLIDE 38 Process Flow Borrower goes under contract or applies for refinance Borrower obtains GC estimate(s) for repairs, rehabilitation, or upgrades Winning bid is forwarded to appraiser in order to determine the to be improved value on both purchases/refinances and added to report Once appraised the loan amount is determined by the Maximum Mortgage Calculation form Loan is Processed, Underwritten, and Closed as normal Up to 50% of repair costs disbursed at closing, remaining funds held in escrow Work is started within 30 days of closing and completed within 3 months. When work is completed, request for final funds and final inspection ordered Final funds are disbursed and any remaining unused funds will be applied as principal reduction to the borrower s loan (no cash to the borrower)

25 SLIDE 39 Limited 203(k) Structural Changes Min/Max Repair Amount Landscaping/Hardscaping HUD Consultant Mortgage Payments Financed Draws Initial Draw to Contractor Max Completion Time No No minimum. Up to 35k in escrow No Not Required Not Allowed 2 (initial and final) Allowable (up to 50% of estimate) 90 days (3 mos.)

26 SLIDE 40 AFR s FHA Limited 203(k) Forms (found on When the work is 100% complete, please have the following forms completed and executed.. Conditional Waiver & Release Mortgagor's Letter of Completion

27 SLIDE (k)s Examples B E F O R E A F T E R

28 SLIDE (k)s Examples (continued) B E F O R E A F T E R

29 SLIDE 43 Frequently Asked Questions (see guidelines for complete details) What are the minimum and maximum amounts for repair costs under this program? There are no minimum repair costs. The maximum total repair costs including the contingency reserve (10%) and costs are $35,000 subject to a maximum loan to value. What FICO score does AFR require for the Limited 203k Program? A 600 minimum FICO score is required with a DU Approve/Eligible. A Refer/Eligible will require a 620 score. Is there a final inspection required to be done once all the work is completed? Yes, an inspection to determine that all listed repairs and or renovations were satisfactorily completed is required regardless of the amount borrowed for the repairs

30 SLIDE 44 Frequently Asked Questions (see guidelines for complete details) Can this program be used for the purchase of HUD homes? Yes. The Limited 203(k) program may be used for single-family housing sold by HUD. REO properties that have been designated by FHA's Management and Marketing contractor as "insurable" with repair escrow ($5,000 or less repairs) or "uninsurable" (with more than $5,000 but no more than $35,000 in required repairs) are eligible How much time is permitted to complete the work? The contractor must finish the work within 90 days. If the work is not completed within 90 days of closing, a principal reduction will be made towards the remaining unpaid balance of the mortgage.

31 SLIDE 45 Frequently Asked Questions (see guidelines for complete details) Are there additional costs to the mortgagor? AFR will hold back $300 to be used towards final inspection. Unused inspection fees will be credited against the unpaid principal balance within 30 days of the projects completion. What is the maximum LTV for the Limited 203 (k) Program? The maximum LTV is a moving target, it is as determined by the FHA 203k Maximum Mortgage Calculation Form Can the Limited 203(k) program be used for Manufactured Housing? Yes. The program can be used for a loan on a manufactured home however, it cannot be used to permanently affix the home to the foundation. The home must be completely secured to the foundation as evidenced by an engineer's certification and appraisal prior to closing.

32 SLIDE 46 Frequently Asked Questions (see guidelines for complete details) How much is the contingency reserve? The contingency reserve is generally 10% of all repairs or rehabilitation expenses. The amount of the contingency reserve can be increased at the underwriters discretion. All funds remaining in the escrow account after final payment to the contractor is made, including any remaining reserve amount will be used as a principle reduction. Where can I go if I have questions or need additional information about the Limited 203(k) program Further questions: renovation@afrwholesale.com or Chat Icon on our website:

33 SLIDE 47 American Financial Resources About Us AFR Wholesale, a division of American Financial Resources, Inc. Nationwide wholesale residential mortgage lender Headquartered in Parsippany, NJ. GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. Serve thousands of mortgage brokers and lenders throughout the country In business since 1997 Grown to one of the largest FHA lenders in the country.

34 SLIDE 48 American Financial Resources Become an Approved Lender As an approved lending partner, you can be set as: TPO Third Party Origination, TF Table Funded, C Correspondent, and/or CDE Correspondent, Direct Endorsement.

35 SLIDE 49 How we can help you? We re here to help, whenever you need us. If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to discuss our programs with you. For our current Lending Partners, we want to hear from you. Feel free to contact us directly with your comments and questions. If you have more introduction to make just copy and paste this page in your Online Assistance Call us powerpoint document. Number: You can contact us by using renovation@afrwholesale.com Live chat We also offer live chat in our company website..

36 SLIDE 50 THANK YOU If you have more introduction to make just copy and paste this page in your powerpoint document. FOR YOUR TIME AND INTEREST